My new year’s resolution has been to spend more time reading random things, and it’s delightfully turned out that random things do a surprising amount to illuminate things I’m working on. For example, a few separate essays in Gordon Wood’s collection The Idea of America: Reflections on the Birth of the United States shed surprising light on some of the discussion in the progressive blogosphere of the political economy of deflation.
He argues that the “republican” ideology that prevailed in the late 18th century held that public officials should be disinterested participants. But they needed some form of income. Ideally, that income would take the form of land rents. But under American circumstances, interest payments might have to substitute:
But with the exception of rents from property, most such direct sources of income were defiled by interest. That is, the income of most American gentlemen did not come without work and participation in commerce, as Adam Smith suggested it ought to for leaders to be truly disinterested. The “revenue” of the English landed aristocrats was unique, said Smith; their income from rents “costs them neither labour nor care, but comes to them as it were, of its own accord, and independent of any plan or project of their own.” Thus would-be disinterested American public leaders struggled to find an equivalent, a reliable source of income that was not stained by marketplace exertion and interest. Many gentlemen of leisure found such a source in the interest from money they had lent out. It is not surprising that so many of the gentry used their wealth in this way. After all, what were the alternatives for investment in an underdeveloped society that lacked banks, corporations, and stock markets? Land, of course, was a traditional object of investment, but in America, as John Witherspoon pointed out in an important speech in the Continental Congress, rent-producing land could never allow for as stable a source of income as it did in England. In the New World, said Witherspoon, where land was more plentiful and cheaper than it was in the Old World, gentlemen seeking a steady income “would prefer money at interest to purchasing and holding real estate.”
Of course “disinterested” people of this sort weren’t actually disinterested. Instead, they had strong economic interests in perpetuating slavery and avoiding inflation.
And, indeed, James Madison was very upset about inflation:
In his working paper drafted in the late winter of 1787 entitled “Vices of the Political System of the United States,” Madison spent very little time on the impotence of the Confederation. What was really on his mind was the deficiencies of the state governments: he devoted more than half his paper to the “multiplicity,” “mutability,” and “injustice” of the laws passed by the states. Particularly alarming and unjust in his eyes were the paper money acts, stay laws, and other forms of debtor-relief legislation that hurt creditors and violated individual property rights. And he knew personally what he was talking about. Although we usually think of Madison as a bookish scholar who got all his thoughts from his wide reading, he did not develop his ideas about the democratic excesses of the state governments by poring through the bundles of books that Jefferson was sending him from Europe. He learned about popular politics and legislative abuses firsthand—by being a member of the Virginia Assembly.
Last (but first in the book), Wood draws a contrast between noting that ideas and interests were bound together, and making the vulgar argument that the constitution was nothing but a plot to advance the interests of creditors:
Such realists or materialists—that is, the Progressive historians—may be right that ideas do not “cause” behavior, but it does not follow that ideas are unimportant and have little or no effect on behavior, or that they can be treated as just one “factor” that now and then comes into play in human experience. Otherwise we would not spend so much time and energy arguing about ideas. I think it is possible to concede the realist or materialist position—that passions and interests lie behind all our behavior—without deprecating the role of ideas. Even if ideas are not the underlying motives for our actions, they are constant accompaniments of our actions. There is no behavior without ideas, without language. Ideas and language give meaning to our actions, and there is almost nothing that we humans do to which we do not attribute meaning. These meanings constitute our ideas, our beliefs, our ideology, and collectively our culture. As we have learned from both “the linguistic turn” and “the cultural turn” over the past several decades, our minds are essential to the ordering of our experience.
In other words, the leaders of the early republic had an ideological account of what sort of person was suited for public office. That naturally led to an ideological account of what sort of interests were legitimate. If a creditor isn’t just a member of an interest group, but actually someone earning a living in a uniquely virtuous way, then those advancing an inflationary agenda are a uniquely pernicious brand of conspirators.